Meaning of cash bill
- The Customer Invoice to Cash process involves the process; from the moment the invoice is created; until the customer’s debt (payment) is settled or reconciled.
- The Invoice to Cash business process begins with the invoice and includes all actions that the user or system performs; to process payments, apply payments, grant credits, and ultimately collect money from your customer.
- Payment transactions also have strong ties to accounting, and one of the goals of this process is to ensure proper accounting of accounts receivable.
- Each system has different transactions and business operations, for bill-to-collect business process, as businesses may follow different revenue recognition rules.
Sub-process under the Collectible Invoice functional area
The process from I to C can be summarized in the following steps:
1.Create a sales invoice
- This may be a manual entry into the system
- Can be created automatically using information from a purchase order
- Can be created based on shipment details
- Or you can use the information available on the existing invoice to copy the same issue of the invoice
2. Payment Tracking
3. Receive payments
4. Manage Discounts, Adjustments, Bad Debts, and Disputes
5. Accounting for receivables to ensure accounting records are properly updated with transactions
Process flow for invoicing process
The Invoice to Cash process can be divided into four sub-processes;
The first step; Invoicing or customer billing
Invoices can be sent to the customer in different ways;
A; This may be a manual entry into the system
Of them; Can be created automatically using information from a purchase order
Three; Can be created based on shipment details
Four ; Or you can use the information available on the existing invoice to copy the same issue of the invoice
Five: You can use any other method depending on your specific business needs
Second step ; Make adjustments to customer invoices or outstanding payments
There could be different types of adjustments that might be needed once the invoice has been issued to the customer. Some are examples;
A; Adjustments; You may need to make adjustments for various reasons such as returned goods, shipping delays, tax differences, etc.
Of them; Disputes; Invoices issued may be disputed by the customer, which must be followed up and closed appropriately.
Three; Discounts; Discounts shall be granted to the customer based on the agreed payment terms or other conditions.
Four ; Bad debts; The invoice could become a bad debt and you may need to cancel it; or plan in your books.
Third step; Receive and manage customer payments
There may be different ways in which payments can be made by the customer. Some are examples;
Of them; Check;
Four ; Adjustment of the accounts payable balance due to the customer as supplier;
Five; Other agreed methods;
Stage four; Application and accounting for money received
Once payment is received, it must be deducted from the client’s dues. There are various ways in which payments can be applied like;
A; To the respective invoice against which payment was received. In this case; the outstanding amount of the special invoice; becomes zero; and the invoice is closed.
Of them; To the respective account; This occurs when the payment cannot be identified against a particular invoice, but the customer is known. In this case; the total of that customer’s “accounts receivable” is reduced by the amount of the receipt; but the respective invoices still remain open.
Three; remains unapplied; Money or payment has been received; but the customer cannot be identified; In this case, the cash is recognized and the payment is classified as unapplied.
This completes the basic bill-to-collect cycle. Other steps such as customer relationship management; bank reconciliation etc. can also be integrated into this cycle.
Key transaction fields
Let’s understand some key generic fields that are used in almost every system or ERP during the invoice to collection process;
- billing date ; Date that will be used as the billing date for generated documents
- accounting date ; The date that defines which accounting period this transaction will be posted to
- quantity invoiced; Quantity of the product to be invoiced.
- net unit price; Price applied to the product
- Net amount of the line; Quantity invoiced multiplied by the net unit price. Line price before taxes.
- Purchase order ; Sales order to generate an invoice for
- Associated; Specific customer to invoice
- Due date; The deadline by which this payment is supposed to be paid. This date is calculated based on the invoice date and payment terms
- Payment method; The method of payment of the invoice
- Expected amount; Total amount To be paid on the due date.
- received; Amount already paid.
- Exceptional; Amount that remains unpaid.
- Date of last payment; Date of the last payment received under this payment plan.
- number of payments; Number of payment events against this payment plan.
- Total paid; Amount that was paid on the invoice.
- Days to Maturity; Number of days the debt is due.
- Purchase reference; An internal reference number used by the trading partner can be entered in this field.
- Payment No; The reference to the payment document (for example, the check number)
- The description; The text added to the payment transaction during entry.
- Payroll amount; The amount of the payment made.
- Received amount; The amount of payment received.
- erased; If the transaction was matched to a transaction on the bank statement.
Key Configurations / Perquisites
Some main elements or key configurations that are essential; to this process before transactions can take place in any ERP or other system:
- Organization; Organization for which to create invoices.
- Associated; The customer to be invoiced
- Payment method; Payment method that the customer will use to pay the invoices
- Payment terms; The payment term that defines the due date of the invoice
- Product; The product to be invoiced
- Tax; Tax to be applied to the product amount (should be automatically extracted from the product definition)